by Michael Connor
As investors increasingly grapple with how to assess “sustainable” business practices and their impact on corporate performance, a new non-profit organization has launched to develop sustainability accounting standards for use by publicly listed U.S. companies in their disclosure statements to the Securities and Exchange Commission.
The Sustainability Accounting Standards Board (SASB) “will be the U.S. voice for material non-financial issues and how to recognize and account for them as part of corporate reporting,” said Jean Rogers, the organization’s Executive Director. “The standards we develop will promote sustainable value creation and ultimately enhance the competitiveness of all U.S. industries on the most pressing challenges facing industry and society today.”
SASB aims to develop reporting standards and benchmarks for environmental, social and governance (ESG) issues that will enable companies “to communicate their ESG performance on the issues most material to their sector and strategy” while helping investors to “enjoy a complete view of risks and opportunities of issuers, and be able to weight portfolios according to sustainability risks.”
SASB was founded by Rogers, a Ph.D. and management consultant who has previously worked with the Global Reporting Initiative on development of the G3 corporate sustainability reporting guidelines; Steve Lydenberg, a partner in Domini Social Investments and founding director of the Initiative for Responsible Investment at Harvard University; and Robert Eccles, Ph.D., of Harvard Business School, who serves as Chair of the SASB board.
Drawing a comparison with the Financial Accounting Standards Board (FASB) – which has since 1973 set standards for financial reporting by companies to the SEC – SASB said it will establish standards “that are concise, comparable within an industry, and relevant to all 35,000 publicly listed companies in the U.S.”
As its first initiative, SASB said it will produce a “Materiality Map” that weights the priority of sustainability issues by industry across 10 sectors, which “would be useful for asset allocation strategies and understanding exposure to certain kinds of environmental, social, and governance (ESG) risk.”
SASB will differ from the Global Reporting Initiative, Roger said, in that it will be industry-specific and focused exclusively on U.S. companies.
In an interview, Rogers said the first industry sector to be addressed by SASB would healthcare. “We’ve spent about three months intensely engaging with investors and companies and with all industries in that sector” – including biotech, pharmaceuticals, medical supplies, healthcare delivery and managed care, Rogers said. Draft standards will be followed by “a long tail” of public comment, review and redrafting, “then finally we’ll be ready for piloting,” she added. SASB’s plan calls for standards to be developed by industry-specific research teams.
Rogers said SASB’s initial three-year budget is about $12 million; about $4 million of that has been raised thus far. One early financial supporter of SASB has been news and information provider Bloomberg LP, which has its own ESG data and analytics product. Other backers include the Metanoia Fund the Rockefeller Foundation.
The SASB launch comes as many companies complain that they’re suffering from sustainability reporting fatigue, with requests for ESG information from numerous organizations with varying standards. A September 2012 survey by GreenBiz Group of 341 companies – most of them large, with annual revenues of more than $1 billion – found that more than half (53 percent) are filling out up to 10 annual surveys from independent groups. Some sectors are surveyed more than others. Fourty-four percent of technology companies and 43 percent of those providing basic materials (such as chemicals, oil and gas, and other extractive industries) said they responded to more than 25 surveys.
At the same time, there’s been a proliferation of sustainability ratings lists including market indices (such as the Dow Jones Sustainability Indexes and FTSE4Good Index Series), mainstream media listings (Newsweek’s Green Rankings and Fortune’s Most Admired Companies) as well as long-standing social investor rankings (the KLD 400 Social Index) and other sustainability lists.
In an effort to bring some order to sustainability ratings, last year the environmental group Ceres and the Tellus Institute announced plans for the Global Initiative for Sustainability Ratings (GISR).
SASB’s Jean Rogers said her standards organization would relate to the GISR in much the same way that the FASB relates to a ratings agency like Moody’s. “We are participating in GISR’s pilot program to develop their rating system, by providing information on what is material in each industry, which they will consider in their rating framework,” she said.